| NEW YORK, July 17
NEW YORK, July 17 Morgan Stanley posted
wealth management results for the second quarter just a hair's
breadth short of a key profitability target it set for the end
of 2015, but bank executives remained concerned about the high
costs of recruiting brokers.
The bank posted pretax profit of $767 million in its wealth
division in the second quarter, 38.6 percent of its total profit
and the highest since Morgan Stanley began a retail brokerage
joint venture with Smith Barney five years ago.
The profit represented 21 percent of net revenue in the
wealth division, a margin that has risen from the single digits
and was close to the bank's target of raising pretax profit
margin to between 22 percent and 25 percent by the end of next
Morgan Stanley Chief Executive Officer James Gorman said he
remained unhappy with the expensive recruiting wars that the
company and its three large rivals were waging to lure top
brokers from each other.
"Long term, strategically, in an oligopoly you'd expect less
movement of financial advisers between firms," he said,
referring to rivals Merrill Lynch Wealth Management,
Wells Fargo Advisors and UBS Wealth Management Americas
. "That doesn't translate yet, but we think it
Gorman raised eyebrows earlier this year by saying
compensation costs at Morgan Stanley Wealth should fall to 55
percent of revenue from 60 percent. People inside and outside
the firm speculated he would be the first executive to curtail
sky-high signing bonuses or make major changes in the way
brokers are paid.
Chief Financial Officer Ruth Porat said the quickest way to
slow down pay growth relative to revenue growth was for brokers
sell more mortgages and loan products. There is ample room to
grow in lending because few wealthy people know Morgan Stanley
is a bank.
What's more, she said, brokers receive lower pay for selling
loans than they do for selling traditional products such as
stocks, bonds, mutual funds and managed investment accounts.
Aside from compensation, other costs fell 9 percent to $762
million in the quarter versus a year earlier because Morgan
Stanley is no longer spending millions to combine operations
with those of Smith Barney. "We completed the integration, and
now we're really benefiting from the operating leverage," Porat
TOTAL CLIENT ASSETS SOAR
Morgan Stanley on Thursday reported that total
second-quarter income more than doubled, helped by rising
revenue in its retail brokerage business.
Buying Smith Barney also has made Morgan Stanley the
industry leader in selling packages of mutual funds and other
"managed account" products that charge fees instead of
commissions, Porat said. Asset management-related fees climbed 9
percent to $2.1 billion from $1.9 billion a year earlier, while
commissions fell 10 percent to $511 million.
Morgan Stanley, which began its joint venture with the
Citigroup-owned Smith Barney in 2009, purchased the
remaining stake that Citi held last year.
Total client assets soared just above $2 trillion at June
30, a record number cited on Wednesday by Bank of America Corp's
Merrill Lynch Global Wealth Management division.
Both firms attributed the rise to market appreciation and
brokers' focus on gathering assets from wealthy people.
Morgan Stanley's 16,316 financial advisers collected $12.5
billion in fee-based assets from clients in the second quarter,
up 25 percent from a year ago but down 34 percent from the first
(Additional reporting by Lauren Tara LaCapra; Editing by Dan
Wilchins and Jeffrey Benkoe)